Kazi Zahidul Hasan :
The government’s interest payment on savings certificates has risen significantly in the recent years putting a tremendous pressure on the national exchequer.
Officials attributed astronomical sales of national savings certificates (NSCs) to the higher interest payment.
In 2017-18, the government paid Tk 19,109 crore as interest against its borrowing from savings certificates.
The net borrowing from the savings certificates stood at Tk 46, 530.30 crore in the fiscal year 2017-2018, though the initial target was Tk 30,150 crore.
The government has allocated Tk 29,180 crore fund for interest payment against NSCs in the outgoing fiscal year (2018-19), while it earmarked Tk 32,800 crore for the next fiscal year.
“Skyrocketing sales of national savings certificates has become a grave concern for the policymakers, as their high interest rates prompted people to flock to buy savings tools meaning that the government’s interest burden is soaring,” a finance ministry official told The New Nation yesterday.
He said: “As the interest burden is mounting, the government has already lowered its borrowing target from NSCs for the three consecutive years.”
The finance ministry, in a policy statement, said the government will reduce the sales of savings tools to Tk 27,000 crore during the fiscal year 2019-20.
The target has slashed to Tk 25,000 crore for the fiscal year (FY) 2020-21 and Tk 26,000 crore for FY2021-22.
“The government has set a higher bank borrowing target and slashed the non-bank borrowing to finance the budget deficit. This policy is expected to ease the government’s interest burden on NSCs,” said the finance ministry official.
The government’s savings tools are now offering interest rates between 11.04 percent and 11.76 percent in contrast to seven to eight per cent given by banks.
The government earlier targeted to borrow Tk 26,197 crore from the savings tools in this fiscal year. But the target was met in just the first seven months of following an unbridle sales of NSCs due to their higher yields.
This has also forced the government to revise the target upward to Tk 45,000 crore.
According to the Department of National Savings (DNS) data, the net sales of savings tools in the July-March period of FY 2018-19 stood at Tk 39,733 crore, up from Tk 36,709 crore in the corresponding period a year earlier.
“High interest payment on NSCs has made the government’s borrowing from the savings tools unsustainable creating huge fiscal burden,” Dr AB Mirza Azizul Islam, a former Finance Advisor to the caretaker government, told The New Nation adding that an enhanced borrowing from the savings tools has also affected the deposit growth in banks and created liquidity crisis in the banking system.
“The government should stop selling savings instruments when the budgetary targets are met. Otherwise, sales of NSC will continue to go up leaving huge adverse impact on fiscal-monetary management,” he added.
Dr AB Mirza Azizul Islam said that the government has decided to reduce borrowing from savings certificate sensing the growing fiscal risk associated with the high non-bank borrowing, especially from NSCs.
“If the government reduces borrowing from NSCs, its interest payment will come down significantly,” he said.
The government has increased tax at source on savings certificate from five percent to 10 percent in the proposed national budget for 2019-20 fiscal year.
